State Bank of India vs The Regional Provident Fund Commissioner & Anr - Thus, continuation of the attachment after the initiation of CIRP and during liquidation, despite the claim being duly admitted, directly obstructs the Liquidator’s statutory mandate under the IBC. It impedes the realization, distribution, and transfer of assets in accordance with the Code, and undermines the principle of equitable treatment of creditors.

 NCLT Hyd.(2025.09.12) in State Bank of India vs The Regional Provident Fund Commissioner & Anr [I.A (IBC) No. 1050 of 2024 IN C.P (IB) No.06/7/HDB/2019 ] held that;

• Thus, continuation of the attachment after the initiation of CIRP and during liquidation, despite the claim being duly admitted, directly obstructs the Liquidator’s statutory mandate under the IBC. It impedes the realization, distribution, and transfer of assets in accordance with the Code, and undermines the principle of equitable treatment of creditors.

Excerpts of the Order;

# 1. This Application has been filed by Mr. K. Vatsa Kumar, the Liquidator of M/s. Speck Systems Limited (“Corporate Debtor” or “CD”), and was subsequently substituted by the State Bank of India (“SBI”), a member of the Stakeholders’ Consultation Committee (“SCC”), seeking the following relief:

a. To Release the attachment on the Immovable Property (viz., Flat bearing No.302/A, in Third Floor admeasuring 3207-00 Sq. Ft in SRI MANU'S AROHA CHAMBERS, on Plot No. A-16/11 (part of Plot No. A- 16) along with undivided share of land admeasuring 95-00 Sq. Yds or 79.42 Sq. Mtrs, in Sy. No. 500, situated at Rukminipuri, within the limits of Kapra Municipality, R.R. District presently under the limits of GHMC Kapra Circle and Mandal, Medchal-Malkajgiri District, Telangana State, belonging to the Corporate Debtor, which was

attached by the Respondent on 31-08-2021 (just 2 days before passing of CIRP orders by this Hon'ble Tribunal in respect of the Corporate Debtor), for non-payment of provident fund dues of Rs.39,50,157/- (Rupees Thirty Nine Lakhs Fifty Thousand One Hundred and Fifty Seven Only) by the Corporate Debtor, so as toenable the Applicant to take forward the Liquidation Process of the CD with regard to the property and achieve objective of value maximization as envisaged in the code.

# 2. Application

(i) IDBI Bank, as the Financial Creditor, initiated insolvency proceedings against M/s. Speck Systems Limited. This Authority admitted the Corporate Insolvency Resolution Process (“CIRP”) by order dated 02.09.2021 in C.P. (IB) No. 06/7/HDB/2019 and appointed Mr. Raghu Babu Gunturu as Interim Resolution Professional (“IRP”), who was subsequently confirmed as Resolution Professional (“RP”) by the Committee of Creditors (“CoC”) in its first meeting held on 06.10.2021.

(ii) It was discovered that on 31.08.2021—two days prior to the admission of the CD into CIRP—the Respondent No. 1 had attached the aforesaid immovable property belonging to the CD.

(iii) The RP requested Respondent No. 1 by letter dated 30.12.2021 to release the attached property. However, the Respondent failed to comply.

(iv) In the due course, pursuant to the decision of the CoC, the RP filed I.A. No. 1774 of 2023 in C.P. (IB) No. 06/7/HDB/2019 seeking liquidation of the CD. This Authority, by order dated 20.12.2023, ordered liquidation and appointed Mr. K. Vatsa Kumar as Liquidator.

(v) The Liquidator issued a public announcement on 23.12.2023 inviting claims from creditors. The Respondent No. 1 submitted claims amounting to Rs. 4,44,02,380/- on 18.01.2024 as follows:  . . . 

(vi) The Liquidator admitted claims amounting to Rs. 2,70,32,471/- by email dated 17.02.2024 and notified Respondent No. 1 that distributions would be made in accordance with the priority prescribed under Section 53 of the IBC. Respondent No. 1 requested full admission of claims by letter dated 04.04.2024.

(vii) The Liquidator, by reply dated 10.04.2024, clarified that claims relating to the subsidiary company, Speck Spatial Tech Ltd., are beyond the scope of the Liquidator’s authority and thus were not admitted.

(viii) Further, the Liquidator clarified that provident fund dues are entitled to priority payment only if a designated fund exists. In this case, no such earmarked fund is available. Therefore, provident fund dues shall be paid in accordance with Section 53(1) of the IBC, subject to Section 36(4) of the Code.

(ix) The Liquidator requested the release of the immovable property by letter dated 20.03.2024. Respondent No. 1, by letter dated 23.03.2024, rejected the request, asserting priority under Section 11(2) of the EPF & MP Act, 1952.

(x) The CD did not create a separate provident fund, and claims fall under Section 53(1)(e) of the IBC. The Respondent’s claim includes amounts towards damages and interest, which do not constitute provident fund dues payable to beneficiaries and thus are not payable from the liquidation estate.

(xi) The Liquidator placed reliance on the Hon’ble Supreme Court’s judgment in in Moser Baer Karamchari Union Thr. President Mahesh Chand Sharma vs. Union of India and others, 2023 ibclaw.in 59 (SC).

(xii) The attachment of the immovable property of the CD two day prior to the admission of CD into CIRP is result of collusion between the CD and Respondent No. 1.

(xiii) The immovable property’s release is essential for the Liquidator to proceed with the liquidation and maximize the realization of assets.

# 3. Counter by Respondent No. 1

(i) The CD, bearing PF code AP/HYD/17116, is an establishment covered under the EPF & MP Act, 1952, and has failed to remit statutory dues amounting to Rs. 39,50,157/- for the period August 2013 to May 2016.

(ii) Upon liquidation order, Respondent No. 1 filed a claim dated 18.01.2024 for Rs. 4,44,02,380/-.

(iii) The EPF dues are not “operational debt” but third-party statutory dues, which must be paid prior to the application of the IBC’s waterfall mechanism. Reliance placed on M/s. Embassy Property Development Pvt. Ltd. v. The State of Karnataka.

(iv) Earmarking provident funds is not mandatory under Section 16A of the EPF & MP Act, and no authorization was granted to the CD to maintain its own PF account

(v) The Reference made to the Hon’ble Supreme Court’s judgment in Sunil Kumar Jain and other vs. Sundaresh Bhatt and others, where provident fund, gratuity, and pension funds were held outside liquidation estate, having priority.

(vi) Section 11(2) of the EPF & MP Act accords priority to provident fund dues over other payments. Attachment of the property of the CD pre-dated the CIRP.

(vii) Allegations of collusion between the CD and Respondent No. 1 were denied. The Authorized Officer acted pursuant to statutory duty. M/s. Speck Spatial Ltd. is a wholly owned subsidiary with common ownership and directors, therefore, lifting the corporate veil is warranted.

(viii) Reliance was placed on the orders of the Hon’ble NCLAT in Sinkandar Singh Jamwal vs. Vinay Talwar [CA (AT) 483/2019], Tourism Finance Corporation of India Ltd. vs. Rainbow Papers Ltd. [2019 NCLAT 463] & SK Constructions vs. EPFO & Anr and judgement of the Hon’ble Supreme Court in State Tax Officer vs. Rainbow Papers Ltd. [Civil Appeal No. 1661 of 2020] supporting the priority of PF dues over other creditors.

(ix) Damages and interest are integral parts of EPF dues, per Hon’ble NCLAT in Anuj Bajpai v. EPFO.

(x) EPF dues, including interest and damages, are outside the liquidation estate under Section 34 of the IBC and not subject to the waterfall distribution under Section 53.

# 4. Counter by Respondent No. 2

(i) Respondent No. 2 was impleaded following the Intervention Petition No. 36 of 2024 in C.P. No. 06/2019 which was allowed by this Authority and was arrayed as Respondent No. 2

(ii) The Respondent No. 2 is a successful bidder who acquired CD as a whole along with assets as detailed in Sale Certificate. Encumbrances prior to auction must be discharged from liquidation proceeds and the purchaser should not bear such liabilities.

(iii) The attachment by Respondent No. 1 became ineffective (“infructuous”) following liquidation commencement. Respondent No. 1 did not claim any charge under Section 52 of the IBC and the assets were sold free from encumbrances.

(iv) Respondent No. 2 made payment to the Liquidator and is entitled to peaceful possession. Continuation of attachment contravenes the “clean slate” principle.

(v) An amount of Rs. 2,70,32,471/- of Respondent No. 1’s claim was admitted and will be paid per the distribution scheme, extinguishing previous liabilities.

(vi) Further, the Respondent No. 2 placed reliance on orders of Hon’ble NCLAT in Paschimanchal Vidyut Vitran Nigam Ltd. vs. HSA Traders and Ors. (2023) ibclaw.in 756, Yarn Sales Corporation vs. Punjab State Power Corporation Ltd. and Anr (2024) ibclaw.in424 NCLAT and R.E.C Ispat Pvt. Ltd. vs. Eastern Power Distribution Company of Andhra Pradesh Ltd. (2024) ibclaw.in 185.

(vii) Respondent No. 1 may only claim against the CD, not its subsidiary. The Liquidator’s rejection of subsidiary claims was appropriate. (viii) The present application merits allowance to avoid irreparable loss to Respondent No. 2.

# 5. Rejoinder

(i) The Respondent No. 1 had filed a claim with the RP during the CIRP for Rs. 1,70,90,675/- which was admitted. However, during the liquidation the claim was filed for both the CD and its subsidiary which was not claimed during the CIRP. The creditor is only allowed update the claim earlier submitted in CIRP and cannot submit an additional claim in liquidation.

(ii) The Hon’ble Supreme Court in Sunil Kumar Jain vs. Sundaresh Bhatt (CA 5910 of 2019 dated 19.04.2022) held that provident fund dues have priority only if funds are available, per Section 36(4) of the IBC.

(iii) In view of the above judgement, the dues of Provident fund, gratuity fund and pension fund have priority only if fund is available. In the present case no earmarked provident fund exists in the present case. Thus, PF dues fall within Section 53(1) of the IBC.

(iv) The Liquidation placed reliance on the order of Hon’ble NCLT, Kolkata in Ram Ratan Modi (RP of Duncans Industries Ltd.) vs. ICICI Bank and Hon’ble NCALT in Primpri Chinchwada Municipal Corporation vs. Jayanti Lal Jain IRP for Windals Auto Pvt. Ltd., directing statutory authorities to release attached property upon CIRP commencement.

(v) Further, the Respondent No. 1 admitted that EPF dues pertain to August 2013 to May 2016. However, the attachment was ordered suspiciously just two days before CIRP admission.

(vi) Claims against the subsidiary are beyond the Liquidator’s jurisdiction under Section 36(4)(d). Also, Respondent No. 1 did not participate in any of the eight SCC meetings, missing opportunity to raise concerns.

(vii) Except for the Cherlapally unit, all other assets, including the attached immovable property, were sold in the 3rd e-auction dated 05.07.2024 on an “as is where is” basis, with full disclosure of attachment, for Rs. 19,81,00,000/- to Respondent No. 2, who has paid the consideration. Distribution of proceeds has been made per Section 53 of the IBC. The admitted claim amount of Rs. 2,70,32,471/- has been kept as an interest-bearing deposit pending resolution of the present litigation.

# 6. SBI, as a member of the SCC, was authorized to represent the CD in pending litigations, and filed I.A (IBC) No. 482 of 2025 in C.P (IB) No. 06/7/HDB/2019 for substitution as Applicant.

# 7. This Authority, by order dated 06.03.2025, substituted SBI in place of the Liquidator as Applicant in this Application.

# 8. Heard the Counsels of all the parties.

# 9. Findings

(i) IDBI Bank initiated Corporate Insolvency Resolution Process (CIRP) proceedings against the Corporate Debtor (CD) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), which were admitted by this Authority on 02.09.2021 in C.P. (IB) No. 06/7/HDB/2019. Mr. Raghu Babu Gunturu was appointed as the IRP and was subsequently confirmed as the RP by CoC.

(ii) Prior to the admission of the CD into CIRP, Respondent No. 1 (Employees’ Provident Fund Organisation - EPFO) attached an immovable property of the CD for alleged non-payment of provident fund dues amounting to Rs. 39,50,157/-. Despite requests from the RP and later the Liquidator for release of the property, the attachment was not lifted.

(iii) The liquidation of the CD was ordered by this Authority on 20.12.2023, and Mr. K. Vatsa Kumar was appointed as the Liquidator. The Liquidator admitted claims amounting to Rs. 2,70,32,471/- out of the total claim of Rs. 4,44,02,380/- filed by Respondent No. 1, rejecting the remaining claims pertaining to interest, damages, and dues of the CD’s subsidiary, Speck Spatial Tech Ltd.

(iv) The Liquidator, and subsequently the Applicant, took the position that in the absence of an earmarked provident fund, such dues must be distributed in accordance with the waterfall mechanism under Section 53 of the IBC. It was also submitted that the claims against the subsidiary are beyond the jurisdiction of the Liquidator.

(v) The immovable property, along with other assets of the CD (excluding the Cherlapally unit), was sold in 3rd e-auction on 05.07.2024 for a total consideration of Rs. 19.81 crore to Bondada Engineering Limited (Respondent No. 2), the successful bidder. However, Respondent No. 1's attachment continues to impede the peaceful possession of the property.

(vi) The primary question that arises for determination is: “Whether Respondent No. 1 is entitled to continue the attachment of the immovable property of the Corporate Debtor despite the initiation of CIRP, subsequent liquidation, and partial admission of its claim by the Liquidator?”

(vii) Upon admission of the CD into CIRP, Section 14 of the IBC, 2016 comes into play and imposes moratorium on all the pending suits or proceedings against the CD initiated in any court of law, tribunal, arbitration panel or other authority.

(viii) The Hon’ble Supreme Court in Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India & Ors. held that once CIRP is admitted, the moratorium imposed under Section 14 prohibits all legal proceedings and attachments against the assets of the Corporate Debtor.

(ix) In the present case, the attachment by Respondent No. 1 was effected two days prior to the admission of CIRP. However, with the commencement of CIRP, such attachment stood suspended by the operation of law and could not have continued during the moratorium period.

(x) Respondent No. 1 has admitted in paragraph 4 of its counter that it lodged a claim of Rs. 1,70,90,675/- before the RP, and subsequently, a total claim of Rs. 4,44,02,380/- before the Liquidator, out of which Rs. 2,70,32,471/- has been admitted. The  admitted amount pertains exclusively to the Corporate Debtor, and not to its subsidiary. Thus, the entirety of Respondent No. 1’s claim against the CD has been duly considered and admitted.

(xi) In paragraph 14 of the Rejoinder, the Liquidator has affirmed that an amount of Rs. 2,70,32,471/-, representing the admitted EPF dues of the CD (Speck Systems Ltd.), has been kept in an interestbearing deposit, to be disbursed subject to the outcome of the present litigation.

(xii) In the Panchanama titled "Attachment of Immovable Property" (annexed to the main Application at pg.36) the EPFO records that CD defaulted in payment of Rs. 39,50,157/- towards provident fund dues. Furthermore, in the claim filed by Respondent No. 1, an amount of Rs. 39,50,157/-, along with recovery charges of Rs. 2,050/- was claimed. Upon verification, the Liquidator admitted the claim for Rs. 39,50,157/-, the very amount for which the attachment was done by R1 in addition to claim for damages, interest and arrears.

(xiii) Accordingly, the Liquidator has expressed readiness in his rejoinder to release the said amount upon the removal of the attachment to enable transfer of possession to the successful auction purchaser. 

(xiv) Reliance is placed on the decision of the Hon’ble NCLAT in B. Parameshwara Udpa vs. Assistant PF Commissioner & Anr [(2022) ibclaw.in 794 NCLAT], 

• “(g) Thus, it can be presumed that `Attachment of Bank Account’ of the `Corporate Debtor’ by `EPFO’ cannot be continued when `Moratorium’ is declared under I & B Code, 2016 and proceedings are required to be kept in abeyance till lifting of moratorium. Liberty can, however, be given to the respondent to continue/ initiate proceedings against the ‘Corporate Debtor’ after disposal of the proceedings and lifting of the `Moratorium’ and completion of the ‘Corporate Insolvency Resolution Process’.”

(xv) The Hon’ble NCLAT also emphasized the overriding effect of Section 238 of the IBC, which provides that the provisions of the Code shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

(xvi) Thus, continuation of the attachment after the initiation of CIRP and during liquidation, despite the claim being duly admitted, directly obstructs the Liquidator’s statutory mandate under the IBC. It impedes the realization, distribution, and transfer of assets in accordance with the Code, and undermines the principle of equitable treatment of creditors.

(xvii) We are of the considered view that the continued attachment by Respondent No. 1 is legally untenable and liable to be vacated. 

# 10. As a result of our discussion, Respondent No. 1 (Employees Provident Fund Organisation) is directed to forthwith lift and release the attachment dated 31.08.2021, effected through the Panchanama titled

• "Attachment of Immovable Property" (annexed to the main Application at pg.36), in respect of the following asset of the Corporate Debtor: “Flat No. 302/A, Third Floor, admeasuring 3207 sq. ft., in "Sri Manu's Aroha Chambers", situated on Plot No. A-16/11 (part of Plot No. A-16), along with undivided share of land admeasuring 95.00 sq. yds. (79.42 sq. mtrs), in Sy. No. 500, located at Rukminipuri, within the limits of Kapra Municipality, presently under GHMC Kapra Circle and Mandal, Medchal-Malkajgiri District, Telangana State.”

Accordingly, this Application is allowed.

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Tamilnad Mercantile Bank Ltd. v. Recovery Officer, The Regional Commissioner-II, EPFO. - Now with the Management of the Corporate Debtor being in the hands of the Liquidator, the prohibiting order and attachment order dated 27.09.2022 and the subsequent letter dated 13.07.2023 addressed to the petitioner Bank defies logic.

 HC Madras (21.11.2023) in Tamilnad Mercantile Bank Ltd. v. Recovery Officer, The Regional Commissioner-II, EPFO. [W.P. Nos. 21777 and 22518 of 2023 and W.M.P. Nos. 21117 and 21956 of 2023] held that.

• Now with the Management of the Corporate Debtor being in the hands of the Liquidator, the prohibiting order and attachment order dated 27.09.2022 and the subsequent letter dated 13.07.2023 addressed to the petitioner Bank defies logic. 

Excerpts of the Order;    

Both the petitions are filed challenging the prohibitory orders dated 27.09.2022 and the consequential order of attachment dated 27.09.2022 and also the show cause notice dated 13.07.2023 issued by the respondent, the Regional Commissioner-II, Employees’ Provident Fund Organisation, Erode, against the petitioner, Tamil Nadu Mercantile Bank Ltd., Erode Branch, represented by the Branch Manager.

# 2. Briefly the facts germane to the case:

2.1. The petitioner Bank is a scheduled Bank with its registered office in Tuticorin and one of its branches in Erode. One M/s.Sri Textile Erode Private Limited availed credit facilities with the petitioner Bank which turned Non Performing Asset (NPA) on 31.07.2018 constraining the petitioner Bank to initiate recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. In the meanwhile another operational creditor M/s. Yuktha Overseas proceeded under the Insolvency and Bankruptcy Code, 2016. The operational creditor M/s.Yuktha Overseas filed CP/1009/IB/2018 under Section 9 of the Insolvency and Bankruptcy Code, 2016 (herein after referred to as “IBC,2016”) against M/s. Sri Textile Erode Private Limited, Erode and the National Company Law Tribunal (NCLT) vide its orders dated 04.10.2018 initiated Corporate Insolvency Resolution Process (CIRP) and an Interim Resolution Professional (IRP) was appointed. This resulted in liquidation process and on 29.04.2018 a Liquidator was appointed who called for claims from all creditors through notification and paper publication. The petitioner Bank had submitted a claim form for Rs.57,45,03,758.90 along with the details of securities available.

2.2. The Liquidator released Rs.14,34,73,661/- to the petitioner Bank towards its share for the credit of the loan account of M/s.Sri Textile Erode Private Limited with them. This was from the sale proceeds of one of the properties sold on 27.09.2019 for a sum of Rs.10,42,30,000/- and another property for Rs.4,43,41,500/- sold on 22.10.2020. In the meanwhile the respondent, the Employees’ Provident Fund Organisation, issued proceedings dated 27.09.2022 by invoking Section 8(B) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (herein after referred to as “EPF and MP Act”) read with Schedule II of the Income Tax Act, 1961, prohibiting and restraining the petitioner Bank from making payments of the said deposit or any part thereof, to any person, whomsoever or otherwise than to the respondent. This was sent along with another order dated 27.09.2022 attaching sums of money or property, which is included in the defaulter’s property, now in the custody of the petitioner Bank.

2.3. Both these orders were for the Provident Fund dues of M/s.Sri Textile Erode Private Limited, amounting to Rs.6,09,80,164/-. One more order dated 13.07.2023 in the form of show cause notice was issued to the petitioner Bank as to why provisions of Section 8 B to 8G of the EPF and MP Act should not be invoked against the person in charge of the petitioner Bank to realise the dues.

2.4. These two writ petitions are filed challenging these three orders.

# 3. Mr. V.Chandrasekaran, learned counsel for the petitioner Bank would contend that there is no privity of contract between the Bank and the respondent Employees’ Provident Fund Organisation. He has highlighted the point that due procedure in the form of public notice and publication was followed by NCLT and the respondent did not file any claims in response to this public notice. He also contended that based on the Bank’s claim for Rs.57,45,03,758.90, they were credited with Rs.10,42,30,000/- and Rs.4,43,41,500/- on two occasions to be credited to the loan account of M/s.Sri Textile Erode Private Limited and the respondent do not have any stake in the said amounts and non recovery of the PF dues from M/s. Sri Textile Erode Private Limited for the period 2016-18 is purely the negligence of the respondent and the petitioner Bank, without any prior information, has been suddenly dragged into the scene with no reasons, whatsoever. It was also his contention that Section 53 of the IBC, 2016 clearly makes the dues time barred as it provides for dues of workmen which is within twenty four months before the process of liquidation. It was his further contention that Section 238 of the IBC, 2016 overrides all other laws and therefore Section 8 of the EPF and MP Act is ineffective and cannot be enforced in the light of the provisions of IBC, 2016. He also argued that the prohibitory order would not fall within the definition of “garnishee order”. Therefore, he prayed for quashing of the three impugned orders.

# 4. Per contra, Mr. P.K.Panneer Selvam, learned counsel for the respondent Employees’ Provident Fund Organisation contended that the Writ Petition 22518/2023 is itself not maintainable since it was filed challenging the two orders dated 27.09.2022 issued by the Employees’ Provident Fund Organisation to the petitioner Bank. According him the Liquidator, who had indulged in the mischief of distributing the assets realised from the sale of securities to the petitioner Bank, ought to have been impleaded in the present petition and therefore also the petition is not maintainable. It was also contended by him that the Liquidator of M/s. Sri Textile Erode Private Limited was in the know of the pending Provident Fund dues of the Corporate Debtor M/s. Sri Textile Erode Private Limited and though Section 11(2) of EPF and MP Act establishes the fact that the Provident Fund dues takes priority over other claims, he ignored the claims of the respondent and thereby committed breach of trust. He also argued that his claim was as early as 28.11.2018 whereas the claim of the petitioner Bank was only on 16.05.2020 and yet the Bank received Rs.10,42,30,000/- and Rs.4,43,41,000/- but the respondent did not receive any amount. According to him, the respondent Employees’ Provident Fund Organisation was constrained to give a written complaint against the Liquidator on 16.02.2023 to the Insolvency and Bankruptcy Board of India. Earlier the respondent Employees’ Provident Fund Organisation had also issued two arrest warrants dated 14.01.2020 and 14.02.2020 against the Liquidator Muthuraju which were stayed by NCLT vide its order dated 10.03.2020, it was contended. His further contention was that Section 36(4)(iii) of IBC 2016 specifically excludes Provident Fund and Pension Fund and Gratuity Fund from the ambit of assets of the Corporate Debtor and therefore the Provident Fund dues of the respondent ought to have been settled first and foremost by the Liquidator. Therefore, he emphasised that the Provident Fund dues have to be paid to the respondent by the petitioner Bank out of the sale proceeds remitted to them by the Liquidator as the defaulter Company Sri Textile Erode Private Limited had maintained accounts with them.

# 5. A quick glance into the sequence of events leading to the impugned orders.

5.1. On 20.11.2018, a show cause notice is issued to M/s. Sri Textile Erode Private Limited, Erode, advising them to remit Provident Fund dues to the tune of Rs.55,11,322/- for non enrolled (for the period 03/16 to 06/18) employees and Rs.5,54,27,932/- for others (for the period 05/16 to 06/18). This was responded to by the said Company vide its letter dated 28.11.2018 by stating that one of its operational creditors approached NCLT which admitted their application for CIRP and ordered to commence CIRP on 04.10.2018 for a period of 180 days to resolve the issues and hence the Company was under moratorium. A copy of the said letter was also marked to N.Sivakumar, Interim Resolution Professional, appointed by the NCLT. Later on 11.06.2019 the respondent wrote a letter to Muthuraju, Liquidator of M/s.Sri Textile Erode Private Limited stating that the default Provident Fund dues is Rs.40,909/- plus Rs.550/- recovery charges asking him to pay the dues owed by the Corporate Debtor M/s.Sri Textile Erode Pvt. Ltd. Subsequently on 20.06.2019, the respondent summoned Muthuraju, Insolvency Professional and Liquidator to their office which was followed by an arrest warrant on 14.01.2020 and again on 14.02.2020, both of which were stayed by the NCLT on 10.03.2020. In the said order the NCLT observed as follows:

• “as the Provident Fund authorities are yet to lodge even their claim before the IRP/RP/Liquidator and the violation is prior to the initiation of the CIRP which also discloses that the IRP/RP/Liquidator has not derelicted in doing his duty and if at all for any lapse, the arrest warrant can be executed in relation to the erstwhile Management of the Corporate Debtor and not against the IRP/RP/Liquidator.”

5.2. On 07.01.2021, the respondent sent a mail to Muthuraju, Liquidator giving the final figure of Provident Fund dues of Rs.6,09,39,255/-. This mail was also sent to the Corporate Debtor M/s.Sri Textiles Erode Private Limited who in turn on 13.01.2021 replied stating that the process of liquidation is on and it has an overriding effect on other laws and hence expressed their inability to respond. Later on 27.04.2021, the proceedings of the inquiry under Section 7A of EPF & MP Act was sent to Muthuraju, the Liquidator and the Corporate Debtor, M/s. Sri Textiles Erode Private Limited. In this proceedings the respondent concluded that the Resolution Professional/Liquidator is considered employer for the purpose of the Act and he has since failed to perform his duties as an employer by not remitting the Provident Fund dues. In the order attached with the proceedings, the respondent has directed the establishment to remit the dues of Rs.6,09,39,255/- within 15 days of the receipt of the order. This was followed by a complaint against the said Muthuraju, Liquidator to the Insolvency and Bankruptcy Board of India. The relevant portion of the complaint reads as “It is an undisputable fact that S.Muthuraju, Resolution Professional was fully aware about the impending dues payable by the Corporate Debtor, ever since the liquidation process had commenced”.

5.3. Till this point of time the petitioner Bank was not in picture. The dispute was between the respondent and the RP/Liquidator appointed by the NCLT. This being so the letters in the form of prohibiting order dated 27.09.2022 and attachment order dated 27.09.2022 were issued to the petitioner Bank about which the petitioner Bank had no idea. Both these orders were not responded to by the petitioner Bank, it appears. However, another letter dated 12.05.2023 was replied by the petitioner Bank on 30.05.2023 in which the Bank had stated that the liquidator while releasing Rs.4,43,41,000/- being the sale proceeds of the second property sold on 22.10.2020 took an undertaking from the Bank that “payment to PF authorities as directed by NCLT in future will be made from the share of distributed amount remitted to the Bank”. Therefore, the petitioner Bank in that letter dated 30.05.2023 concluded by stating that the claim has to be decided by the liquidator subject to the approval of NCLT. The third impugned order of the respondent dated 13.07.2023 followed this reply of the petitioner Bank. This order is the one challenged in W.P.No.21777/2023.

# 6. It is well settled that as far as the dues of the workmen/employees on account of Provident Fund, gratuity or pension are concerned, they shall be governed by Section 36(4) of IBC 2016. Section 36(4) (iii) specifically excludes “all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund” from the ambit of “liquidation estate assets”. Therefore, it is clear that Section 53(1) of the IBC, 2016 shall not be applicable to such dues, which are to be treated outside the liquidation process and liquidation estate assets under the IB Code.

6.1. In Civil Appeal No.5910 of 2019 (MANU/SC/0499/2022) in the case of Sunil Kumar Jain and Others Vs. Sundaresh Bhatt and Others, the Apex Court observed thus :

• “considering Section 36(4) of the IB code and when the provident fund, gratuity fund and pension fund are kept out of the liquidation estate assets, the share of the workmen dues shall be kept out of the liquidation process and the concerned workmen/employees shall have to be paid the same out of such provident fund, gratuity fund and pension fund, if any, available and the Liquidator shall not have any claim over such funds.

In the instant case, the Liquidator ought to have taken control of the assets as well as liabilities of the Corporate Debtor. He was duly informed of the PF dues by both the Corporate Debtor as well as the respondent Employees’ Provident Fund Organisation. Despite this, the argument that no claim was made by the respondent before the Liquidator is not acceptable.

6.2. Nevertheless, now with the Management of the Corporate Debtor being in the hands of the Liquidator, the prohibiting order and attachment order dated 27.09.2022 and the subsequent letter dated 13.07.2023 addressed to the petitioner Bank defies logic. The amounts remitted by the Liquidator is towards liquidation of the loans outstanding against the name of the Corporate Debtor. As rightly pointed out by the petitioner Bank, the three impugned letters smack of abuse of power when the grievance is against the Liquidator. In this context, it is pertinent to point out the provisions of the IB Code which stipulates that the IRP should obtain and review Income Tax and other statutory notices. Similarly, he is also expected to, as soon as possible after his appointment, obtain details of the financial institutions that are maintaining accounts of the CD and inform them of commencement of CIRP of the CD and appointment of IRP. The IRP should also immediately give instructions for stopping payment from the account without the authority of the IRP and also change the details of the signatories of the accounts so as to take control of the account. In fact, it is recommended that where required, a new account may be opened.

# 7. In such circumstances, the prohibitory orders or attachment order being sent to the petitioner Bank appears out of the rule book. This is not a case where the defaulter is not under liquidation initiated by the IBC. This is also a case where the petitioner Bank intimated of the dues. In my opinion, the orders of the respondent on the hapless Bank Management is erroneous. The respondent ought to have moved an application before the NCLT instead of intimating the petitioner Bank who are not directly in control of the CD.

# 8. In the result, the Writ Petitions are allowed. The impugned orders of the respondent dated 27.09.2022 and 13.07.2023 are quashed as prayed for by the petitioner Bank. No costs. Consequently connected Writ Miscellaneous Petitions are closed.

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Mr. B. Parameshwara Udpa RP of M/s. Easun Reyrolle Ltd. Vs. Assistant PF Commissioner EPFO - Therefore, the `Resolution Professional’ is not duty bound to make adequate provisions for ‘Provident Fund’ when the `Corporate Debtor’ did not have separate `Provident Fund Account’.

NCLAT (30.09.2022) in Mr. B. Parameshwara Udpa RP of M/s. Easun Reyrolle Ltd. Vs. Assistant PF Commissioner EPFO [Company Appeal (AT) (CH) (Ins) No. 231 of 2021] held that;

• The `Provident Fund’ referred to Section 36(4)(a)(iii) of the I & B Code, 2016 applies to `Provident Fund Accounts’, maintained as per Section 16-A of the `Employees Provident Fund’ & `Miscellaneous Provisions Act, 1952’.

• If we read Section 14(1)(a), it can be inferred that there shall be complete embargo to continue any proceeding against the ‘Corporate Debtor’ by any `Authority’ till the ‘Corporate Insolvency Resolution Process’ is completed and `Moratorium’ is lifted by the ‘Adjudicating Authority’ or it result into `Liquidation’ on failure of the ‘Corporate Insolvency Resolution Process’.

• Thus, it can be presumed that `Attachment of Bank Account’ of the `Corporate Debtor’ by `EPFO’ cannot be continued when `Moratorium’ is declared under I & B Code, 2016 and proceedings are required to be kept in abeyance till lifting of moratorium.

• It is therefore evident that amount deducted for `Provident Fund’, purely belongs to an `Employee’ and not to be treated as an `Asset’ of the ‘Corporate Debtor’ and cannot be touched by an `Interim Resolution Professional’/`Resolution Professional’/ `Liquidator’ as the case may be.

• Therefore, it can be concluded that `Resolution Professional’ is right in seeking lifting of `Attachment Orders’ on `Bank Account’ of ‘Corporate Debtor’ and the ‘Adjudicating Authority’ should have done accordingly.

• The Provident Fund referred to Section 36(4)(a)(iii) I & B Code, 2016 applies to Provident Fund Accounts maintained as per Section 16-A of the Employees Provident Fund & Miscellaneous Provisions Act, 1952. 

• The Exclusion from the Liquidation Estate Assets as well as from Recovery in Liquidation, as stipulated in Section 36(4)(a)(iii) of I&B Code, 2016, applies in respect of sums due to any workman or employee from the Provident Fund, when the Corporate Debtor has maintained an Establishment fund in terms of Section 16-A of the Employees Provident Fund, Miscellaneous Provisions Act,1952.

• This `Tribunal’ gave clear verdict that where no fund is created by a Company, the `Liquidator’ should not have been directed to make provision for payment of Gratuity to the Workmen. 

• Based on this, the only inference which can be drawn is that Pension Fund, Gratuity Fund and Provident Fund cannot be utilised, attached or distributed by the liquidator, to satisfy the claim of other creditors. 

• Section 36(2) of the I B Code 2016 provides that the Liquidator shall hold the Liquidation Estate in fiduciary for the benefit of all the Creditors. The Liquidator has no domain to deal with any other property of the corporate debtor, which is not the part of the Liquidation Estate.

• In a case, where no fund is created by a company, in violation of the Statutory provision the Section 4 of the Payment of Gratuity Act, 1972, then in that situation also, the Liquidator cannot be directed to make the payment of gratuity to the employees because the Liquidator has no domain to deal with the properties of the Corporate Debtor, which are not part of the liquidation estate. 

• Therefore, the `Resolution Professional’ is not duty bound to make adequate provisions for ‘Provident Fund’ when the `Corporate Debtor’ did not have separate `Provident Fund Account’. 

• Further, in terms of Regulation 13, the ‘Resolution Professional’ is mandated to verify the `Claim’ and subsequently determine the amount of `Claim’ as per Regulation. 14. It is therefore, necessary that any person having `Claim’ over the ‘Corporate Debtor’ has to prefer `Claim’ as stipulated in such regulations.

Excerpts of the Order;

The Present `Appeal’ is filed against the ‘impugned order’ dated 20.04.2021, passed in IA/1273/IB/2020 in IBA/1045/2019 & IBA/1169/2019 by the ‘Adjudicating Authority’ (National Company Law Tribunal, Division Bench-I, Chennai), whereby, the ‘Adjudicating Authority’ rejected the said `Petition’ under the `Insolvency & Bankruptcy Code, 2016’ (in short ‘I & B Code, 2016).

 

Brief Facts:

# 2. That the present `Appeal’ is filed by the `Appellant’ under Section 61(1) of I & B Code, 2016 aggrieved by the `Order’ dated 20.04.2021, passed by the (‘Adjudicating Authority’), `National Company Law Tribunal’, Division Bench – I, Chennai, in IA/1273/IB/2020 in IBA/1045/2019 & IBA/1169/2019 `disposing of’ with the directions to the `Appellant’.

 

# 3. The ‘Adjudicating Authority’, by virtue of its `Common Order’ dated 05.05.2020 made in IBA/1045/2019 and IBA/1169/2019 initiated the `Corporate Insolvency Resolution Process’ (“CIRP“) against M/s. Easun Reyrolle Limited (hereinafter referred to as “Corporate Debtor“). The `Committee of Creditors’ (“CoC”) in their `1st CoC Meeting’ appointed the `Appellant’ as the `Interim Resolution Professional’ (“IRP”) of the `Corporate Debtor’, who was later confirmed as `Resolution Professional’ (“RP”).

 

# 4. During examination of the Accounts of the `Corporate Debtor’, the ‘Interim Resolution Professional’ came across the `Orders of Attachment’ dated 04.06.2018, 20.07.2018 and 23.08.2019 issued by the `Respondents’ attaching the `Bank Account No. 30198329762’ of the `Corporate Debtor’ maintained with the State Bank of India, Mookandapalli Branch, which followed by the `Show Cause Notices’ dated13.07.2018, 30.08.2018 and 01.10.2018 addressed to the State Bank of India for non-compliance of the `Attachment Order’. The State Bank of India replied vide its letters dated 01.10.2018 and 07.08.2020 claiming priority over all debts and government dues and further stated that in terms of Section 18(f) of I &B Code, 2016, the `Resolution Professional’ has ownership over all the `Assets’ of the `Corporate Debtor’, till the conclusion of ‘Corporate Insolvency Resolution Process’ and hence, `State Bank of India’ is bound to allow operations / withdrawals, if any, done by the `Resolution Professional’ in the account, for which the `Attachment Orders’ are served.

 

# 5. The Respondent No. 2 addressed an email dated 30.09.2020 to the Appellant enclosing the Letter of Demand dated 23.09.2020 for a sum of Rs.9,60,729/-for the period of default.

 

# 6. The Appellant filed an Application IA/1273/2020 before the ‘Adjudicating Authority’ seeking removal of `Orders of Attachment’ of the `Bank Account’ of the `Corporate Debtor’.

 

# 7. The `Adjudicating Authority’ by its `Order’ dated 20.04.2021 disposed of the Application IA/1273/IB/2020 with a direction to the Appellant to make adequate provisions in relation to the amount stated in the `Orders of attachments’ as due towards PF dues and subject to making adequate provisions to their satisfaction, before Respondents can remove the `Orders of Attachment’ of the `Bank Accounts’ of the `Corporate Debtor’.

 

# 8. The Appellant has alleged that the ‘impugned order’ is contrary to the Section 14 of the I & B Code, 2016.

 

# 9. It is pleaded that the ‘Adjudicating Authority’ has not taken into account that the `Provident Fund’ referred to Section 36(4)(a)(iii) applies to ‘Provident Fund Accounts’ in terms of Section 16-A of the ‘Employees Provident Fund’, Miscellaneous Provisions Act, 1952. The ‘Adjudicating Authority’ failed to remove attachment of bank account of the ‘Corporate Debtor’ due to the `Orders’ of the Respondents.

 

# 10. Hence, the present `Appeal’.

 

Discussions / Findings

# 19. Heard the Learned Counsel Counsels for the Appellant and the Respondents and also perused record made available to us. Several issues have been raised in the `Appeal’, which are required to be deliberated upon before coming to final conclusion.

• (i) Whether an `Attachment Order’ on `Bank Account’ of the ‘Corporate Debtor’ imposed before the initiation of ‘Corporate Insolvency Resolution Process’, can continue during `Moratorium’ under Section 14 of the I & B Code, 2016?

• (ii) Whether, the Resolution Professional is duty bound to make adequate provisions for ‘Provident Fund’ to make adequate provisions for `Provident Fund’ even though the ‘Corporate Debtor’ did not have separate `Provident Fund Account’.

• (iii) Whether the ‘Adjudicating Authority’ can direct ‘Resolution Professional’ to make provisions for ‘Provident Fund’ without receiving claims for the same by the concerned Authority?

 

Issue No. (i) Whether an attachment on Bank account of ‘Corporate Debtor’ imposed before initiation of ‘Corporate Insolvency Resolution Process’, can continue during moratorium under Section 14 of the I & B Code, 2016?

(a) The ‘Corporate Debtor’ did not have a `Separate Employees Provident Fund’ as provided for in Section 16-A of the `Employees Provident Fund’ and `Miscellaneous Provisions Act, 1952’. The `Provident Fund’ referred to Section 36(4)(a)(iii) of the I & B Code, 2016 applies to `Provident Fund Accounts’, maintained as per Section 16-A of the `Employees Provident Fund’ & `Miscellaneous Provisions Act, 1952’. The Exclusion from the `Liquidation Estate Assets’ as well as from Recovery in `Liquidation’, as stipulated in Section 36(4)(a)(iii) of I & B Code, 2016, applies in respect of sums due to any workman or employee from the `Provident Fund’, when the `Corporate Debtor’ has maintained an `Establishment Fund’ in terms of Section 16-A of the `Employees Provident Fund’, `Miscellaneous Provisions Act,1952’.

(b) We have gone through the Citations as quoted both by the ‘Appellant’ and the ‘Respondents’ as discussed in the preceding paragraphs.

(c) This `Tribunal’ also note carefully the contention of the Learned Counsel for the Appellant that both the cases cited by the Learned Counsel for the Respondents are in different context and circumstances and therefore cannot be equated to the present `Appeal’. The Appellant points out that the 1st case is in respect of a dispute raised by the `Successful Resolution Applicant’, as against the `Regional Provident Fund Claim’ and the 2nd case pertains the Encumbrance created by the `Employees Provident Fund Organisation’ by attaching the properties of the `Corporate Debtor’ with the Sub Registrar Office. The facts in both the cases do not apply to the facts of the present case in `Appeal’ and hence, the said Citations of the ‘Respondents’ cannot be relied on.

(d) This `Tribunal’ note that the facts of Mr. Savan Godiwala (Supra) case are similar to the present case, wherein the `Adjudicating Authority’ had directed the `Liquidator’ to pay `Gratuity’ to the `Employees’ and shall not avoid liability on the ground that the ‘Corporate Debtor’ did not have separate funds for payment of Gratuity. The Order records clearly therein that where no fund is created by a Company, the `Liquidator’ should not have been directed to make provision for payment of Gratuity to the Workmen.

(f) From the above, 14(1)(a), it is clear that continuation of pending suits or proceedings against the ‘Corporate Debtor’ including Execution of any Judgment, decree or order in any `Court of Law’, `Tribunal’, `Arbitration Panel’ or other `Authority’ will temporarily cease to operate during `Moratorium’. The purpose of the Section 14 is to ensure that no depletion of `Assets’ of the ‘Corporate Debtor’ takes place during the ‘Corporate Insolvency Resolution Process’ and the ‘Corporate Debtor’ is allowed to continue as a going concern in order to maximise the value for all the `Stakeholders’. If we read Section 14(1)(a), it can be inferred that there shall be complete embargo to continue any proceeding against the ‘Corporate Debtor’ by any `Authority’ till the ‘Corporate Insolvency Resolution Process’ is completed and `Moratorium’ is lifted by the ‘Adjudicating Authority’ or it result into `Liquidation’ on failure of the ‘Corporate Insolvency Resolution Process’. As such, the order of `Moratorium’ shall give relief to the ‘Corporate Debtor’ from any such continuation during calm period. This ought to cover attachments of Bank Accounts by any Authority including `EPFO’ and it is required to be lifted to allow the ‘Corporate Debtor’ a fair chance of revival and to ensure that the `Prospective Resolution Applicants’ come forward to submit the ‘Resolution Plan’. It may also be inferred from the circumstances and intent of legislation that, in this particular cases the fact that the `Attachment’ was ordered prior to the initiation of the ‘Corporate Insolvency Resolution Process’ should not impact the outcome of lifting such `Attachment’ during `Moratorium’.

(g) Thus, it can be presumed that `Attachment of Bank Account’ of the `Corporate Debtor’ by `EPFO’ cannot be continued when `Moratorium’ is declared under I & B Code, 2016 and proceedings are required to be kept in abeyance till lifting of moratorium. Liberty can, however, be given to the respondent to continue/ initiate proceedings against the ‘Corporate Debtor’ after disposal of the proceedings and lifting of the `Moratorium’ and completion of the ‘Corporate Insolvency Resolution Process’.

(h) This `Tribunal’ consciously takes note of the fact that there is no exact precedent. However, there are several cited judgments for similar circumstances but in different context.

This `Tribunal’ also take note of Section 238 of I & B Code, 2016

“Section 238: Provisions of this Code to override other laws.

*238. The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”

(i) Section 238 of the Code, is a non `obstante clause’ and state that `notwithstanding anything inconsistent therewith in any other law for the time being in force or any instrument having affect by virtue of any other law, the provisions of the code shall have full effect. This has been given as an overriding effect towards the provisions or act by ensuring that provision of the I & B Code, 2016 to be continued into force even they were inconsistent with any other law. I & B Code, 2016 is a comprehensive code, with a primary aim to simplify and expedite `Insolvency Proceedings’ and is primarily in nature of beneficial commercial legislation, with an aim to put the ‘Corporate Debtor’ back on its feet. It protects interest and right of all `Stakeholders’, which also include `EPFO’.

(j) Section 36(4) of I & B Code 2016 mentions:

“36(4). The following shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation-

(iii) all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund;”         [emphasis supplied]

(k) It is therefore evident that amount deducted for `Provident Fund’, purely belongs to an `Employee’ and not to be treated as an `Asset’ of the ‘Corporate Debtor’ and cannot be touched by an `Interim Resolution Professional’/`Resolution Professional’/ `Liquidator’ as the case may be. However, it is important to note that the `Provident Fund’, is to be of `Establishment Fund’ kept separately by the company and then only this proviso will be applicable. If, even wrongly and in violation of the laws of the land, the company fails to establish such `Provident Fund’, then `Interim Resolution Professional/Resolution Professional/Liquidator’ is not expected to provide for same, except under Section 53 of the I & B Code, 2016.

(l) This `Tribunal’ notes that in the present case, there was no specific fund towards `Provident Fund’. It is reiterated that during `Moratorium’ all proceedings and embargo are deemed to have been lifted. Therefore, it can be concluded that `Resolution Professional’ is right in seeking lifting of `Attachment Orders’ on `Bank Account’ of ‘Corporate Debtor’ and the ‘Adjudicating Authority’ should have done accordingly. In view of this, we are not in agreement with the stand taken by the ‘Adjudicating Authority’ in the ‘impugned order’ on this issue.

 

Issue No. (ii) Whether, Resolution Professional is duty bound to make adequate provisions for ‘Provident Fund’ even though the Corporate Debtor did not have separate PF account.

(a) The ‘Corporate Debtor’ did not have a Separate Employees Provident Fund as provided for in Section 16-A of the Employees Provident Fund and Miscellaneous Provisions Act, 1952. The Provident Fund referred to Section 36(4)(a)(iii) I & B Code, 2016 applies to Provident Fund Accounts maintained as per Section 16-A of the Employees Provident Fund & Miscellaneous Provisions Act, 1952. The Exclusion from the Liquidation Estate Assets as well as from Recovery in Liquidation, as stipulated in Section 36(4)(a)(iii) of I&B Code, 2016, applies in respect of sums due to any workman or employee from the Provident Fund, when the Corporate Debtor has maintained an Establishment fund in terms of Section 16-A of the Employees Provident Fund, Miscellaneous Provisions Act,1952.

“16A. Authorising certain employers to maintain provident fund accounts.—

(1) The Central Government may, on an application made to it in this behalf by the employer and the majority of employees in relation to an establishment employing one hundred or more persons, authorise the employer, by an order in writing, to maintain a provident fund account in relation to the establishment, subject to such terms and conditions as may be specified in the Scheme: Provided that no authorisation shall be made under this sub-section if the employer of such establishment had committed any default in the payment of provident fund contribution or had committed any other offence under this Act during the three years immediately preceding the date of such authorisation.

(2) Where an establishment is authorised to maintain a provident fund account under sub-section (1), the employer in relation to such establishment shall maintain such account, submit such return, deposit the contribution in such manner, provide for such facilities for inspection, pay such administrative charges, and abide by such other terms and conditions, as may be specified in the Scheme.

(3) Any authorisation made under this section may be cancelled by the Central Government by order in writing if the employer fails to comply with any of the terms and conditions of the authorisation or where he commits any offence under any provision of this Act: Provided that before cancelling the authorisation, the Central Government shall give the employer a reasonable opportunity of being heard.]

“Section 36(4)(a)(iii) of the I & B Code 2016

(iii) all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund;”

 

This `Tribunal’ vide order dated 11.02.2020 passed in Company Appeal (AT) (Insolvency) No.1229 of 2019 in the matter of Mr. Savan Godiwala, Liquidator of Lanco Infratech Ltd., vs. Mr. Apalla Siva Kumar has dealt on similar case where issue was regarding payment of gratuity as against payment of provident fund in the present `Appeal’. The facts of the case are similar to the present `Appeal’. This `Tribunal’ gave clear verdict that where no fund is created by a Company, the `Liquidator’ should not have been directed to make provision for payment of Gratuity to the Workmen. In the present case, therefore as per ratio of this `Tribunal’ in `Godiwala Case’, the `Corporate Debtor’ has not created any specific fund for the purpose of `Provident Fund’ and therefore the direction to the Resolution Professional to make adequate provisions towards the demand of the Respondents is not correct. The relevant portion of the quoted judgment are reproduced as under:-

• “In case of State Bank of Indiav Moser Baer Karamchari Union and Another ,2019 SCC OnLine NCLAT 447 this Appellate Tribunal has held that;

• “16. In terms of sub-section(4)(a)(iii)of Section36, as all sums due to any workman or employees from the provident fund, the pension fund and the gratuity fund, do not form part of the liquidation estate/ liquidation assets of the ‘Corporate Debtor’, the question of distribution of the provident fund or the pension fund or the gratuity fund in order of priority and within such period as prescribed under Section 53(1), does not arise.

• 20. There is a difference between the distribution of assets and preference/priority of workmen’s dues as mentioned under Section53(1)(b) of the ‘I&B Code’ and Section 326(1) (a) of the Companies Act, 2013. It has also been noticed that Section 53(1) (b) (i) which relates to distribution of assets, workmen’s dues is confined to a period of twenty-four months preceding the liquidation commencement date.

• 21. While applying Section 53 of the l&B Code’, Section 326 of the Companies Act, 2013 is relevant for the limited purpose of understanding ‘workmen’s dues” which can be more than provident fund, pension fund and the gratuity fund kept aside and protected under Section 36(4) (iii).

• 22. On the other hand, the workmen’s dues as mentioned in Section 326(1) (a) is not confined to a period like twenty-four months preceding the liquidation commencement date and, therefore, the Appellant for the purpose of determining the workmen’s dues as mentioned in Section 53(1) (b), cannot derive any advantage of Explanation (iv) of Section 326 of the Companies Act, 2013.

• 23. This apart, as the provisions of the I&B Code’ have overriding effect in case of consistency in any other law for the time being enforced, we hold that Section 53(1) (b) read with Section 36(4) will have overriding effect on Section 326(1) (a), including the Explanation(iv) mentioned below Section 326 of the Companies Act, 2013.

• 24. Once the liquidation estate/ assets of the ‘Corporate Debtor’ under Section 36(1) read with Section 36 (3), do not include all sum due to any workman and employees from the provident fund, the pension fund and the gratuity fund, for the purpose of distribution of assets under Section 53, the provident fund, the pension fund and the gratuity fund cannot be included.

• 25. The Adjudicating Authority having come to such finding that the aforesaid funds i.e., the provident fund, the pension fund and the gratuity fund do not come within the meaning of ‘liquidation estate’ for the purpose of distribution of assetsunderSection53, we find no ground to interfere with the impugned order dated 19.03. 2019.

• Thus, it is the settled position of law, that the provident fund, the pension fund and the gratuity fund, do not come within the purview of liquidation estate‘ for the purpose of distribution of assets under Section 53 of the Code. Based on this, the only inference which can be drawn is that Pension Fund, Gratuity Fund and Provident Fund cannot be utilised, attached or distributed by the liquidator, to satisfy the claim of other creditors. Section 36(2) of the I B Code 2016 provides that the Liquidator shall hold the Liquidation Estate in fiduciary for the benefit of all the Creditors. The Liquidator has no domain to deal with any other property of the corporate debtor, which is not the part of the Liquidation Estate.

• In a case, where no fund is created by a company, in violation of the Statutory provision the Section 4 of the Payment of Gratuity Act, 1972, then in that situation also, the Liquidator cannot be directed to make the payment of gratuity to the employees because the Liquidator has no domain to deal with the properties of the Corporate Debtor, which are not part of the liquidation estate.

• …..Therefore, this Appellate Tribunal is of the considered opinion that the Adjudicating Authority erred in directing the Liquidator to make provision for payment of Gratuity to workers, as per their entitlement. Thus, Appeal is allowed and the impugned direction to ‗Liquidator to make provision for payment of Gratuity, without their being a separate fund in this regard, is set aside.”

 

Therefore, taking benefit of the ratio of above discussions in `Godiwala Case’, this `Tribunal’ answers the aforesaid issue in the negative. Therefore, the `Resolution Professional’ is not duty bound to make adequate provisions for ‘Provident Fund’ when the `Corporate Debtor’ did not have separate `Provident Fund Account’. It is again reiterated that the `Resolution Professional’ has to deal with the `Claims’, if any, on this `account’, in terms of Section 53 of the I & B Code 2016, if warranted, and provided as per `Law’.

 

Issue No. (iii) Whether the ‘Adjudicating Authority’ can direct RP to make provisions for PF funds without receiving claims for the same by concerned authority?

(a) Admittedly, the Respondents had not filed their `Claims’, within the `prescribed time’ with the `Resolution Professional’ and seeks to enforce their `Claim(s)’, merely on the basis of `Orders of Attachment’, passed much prior to the period of commencement of the `Corporate Insolvency Resolution Process’.

(b) According to IBBI (Resolution Process for Corporate Persons) Regulation, 2016, Regulation 6 requires ‘Resolution Professional to make a `Public Announcement’, within three days of his appointment and ask for the `Claims’ within 14 days of such `Public Announcement’. Regulation 7 provides for `Claims’ by the ‘Operational Creditor’ and Regulation 8 provides for `Claims’ by the ‘Financial Creditor’, Regulation 9 provides for `Claims’ by the ‘Workmen and Employee’, etc. Further, in terms of Regulation 13, the ‘Resolution Professional’ is mandated to verify the `Claim’ and subsequently determine the amount of `Claim’ as per Regulation. 14. It is therefore, necessary that any person having `Claim’ over the ‘Corporate Debtor’ has to prefer `Claim’ as stipulated in such regulations.

(c) This Tribunal do not agree with the ‘Adjudicating Authority’ who gave such directions to the ‘Resolution Professional’.

 

20. Therefore, this `Tribunal’ is of the considered opinion that the ‘Adjudicating Authority’ erred in giving directions as contained in the ‘impugned order’ dated 20.04.2021. `Appeal’ is therefore `allowed’ and the ‘impugned order’ is hereby set aside by this `Tribunal’. However, `Liberty’ is granted to the `Respondents’ to `initiate proceedings / continue’ against the ‘Corporate Debtor’ after completion of the ‘Corporate Insolvency Resolution Process’ and lifting of the `Moratorium’, if required, and in the manner known to `Law’ and in accordance with `Law’. No costs.

 

The connected pending `Interlocutory Applications’, if any, are Closed.

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